A HANDBOOK FOR ENTREPRENEURS HOW TO TURN YOUR GREAT IDEA INTO A BUSINESS

Entrepreneurship requires a lot more than being the right man in the right place at the right time. If you decide to do something about that “great idea” you have, you should plan the venture meticulously. Entrepreneur-ship requires impulsiveness, but don’t be rash. Most so-called overnight success stories are the result of months, even years of careful thought and planning.



Understanding your product



The better your idea is, the tougher your competition will be once your product or service reaches the marketplace. (If it’s such a good idea, chances are someone else thought of it before you did.) Your business will not be operating in a vacuum: No matter how original your concept is, it will need careful positioning vis-a-vis established competitors.

Generally, your market position should be based on some unmet consumer need, the so-called “latent demand” in the field you’re entering. Here are some examples of market positioning from the Caruth Institute of Owner Managed Business’s handbook, “Investing in the Entrepreneur.”

1. Supply of a product or service otherwise unavailable: This strategy generally works best in technological fields. A good local example is Texas Materials Laboratories, which first developed a basic semiconductor material for use in pocket calculators.

2. Lower pricing: There’salways some part of the market that wants a bargain. Example: Southwest Airlines.

3. Convenience: On theother hand, some consumersdon’t mind paying more forease and comfort in shopping.Example: 7-Eleven stores.

4. Pride and status: Someconsumers buy for the prestige of the label. Example: Marie Leavell’s.

Personal Safety: Different segments of the market have different safety needs. Example: Neighborhood Co-op Patrol.

6. Special purchasing terms: Some consumers don’t like to, or can’t, pay cash. Example: Zales.



Putting it in writing



Once you’ve identified your market position, you’ll need to reduce your concept to writing. The business prospectus is probably one of the least understood elements of the entrepreneurial venture: Many would-be entrepreneurs view it as little more than a promotional brochure. Of course, the prospectus is the heart of your sales pitch to investors, but it needs to be more than hype.

According to the Caruth Institute, your business plan should be a detailed outline of your business as it will be. It should include projected expenses of everything from the cost of your raw materials to office supplies. It should have a detailed schedule of your short-term hiring plans: how many employees you plan to bring aboard, when and how much you plan to pay them. A 12-month cash flow scheme should be outlined to the last cent.

Primarily, the business plan needs to be specific: It should not only convince a would-be investor of your conversance with the industry in general: it should be able to stand the test of an accountant’s review.

Raising the money



There are only six basic sources of venture capital: Yourself, relatives, government agencies or programs (Small Business Administration), banks, private investors, and the Arabs. None of them has a history of generosity. But assuming that you’re not independently wealthy (most entrepreneurs are not) and don’t have a rich aunt or know any Arabs, your best bet may be the private investor.

This isn’t to suggest you should ignore the banks or the SBA when developing your capitalization plan, but remember that such lending institutions place a lot of restrictions on their loans. A bank loan is necessarily short-term. That could place an unnecessary burden on your business; most enterprises aren’t built for quick, steady return. The SBA presents an additional problem: The Fed doesn’t know how to do anything without a lot of red tape. Securing an SBA loan could take time – a year or two – and, depending on your competition, that could make your venture an idea whose time has come and gone.



Dressing fit to sell



The clothes don’t always

make the man, but these tips on how to dress for the sales pitch, gleaned from Dress for Success, by John T. Molloy, might give you an extra edge.

1. If you are not a Southerner, but are selling in the South,never wear a polka-dot tie. Ifyou are a Southerner, it isacceptable.

2. Don’t wear dark pin-stipe suits; medium-range solid blues and grays are best.

3. In most of the South, thewhite shirt is still the safest.

4. You will cut down onyour credibility in the Southif you wear an Ivy League tieor any type of fancy footwear.

5. Short-sleeve shirts areacceptable in the South, butlong sleeves are recommended if you’re not a friend of thecustomer.

6. If you need to go East insearch of capital, watch yourcolor coordination: Brightshades and patterns are acceptable down here, but notin New York.



Tips for selling to the private investor



1. Make certain you’re speaking his language. Entrepreneurs are notorious for their bad business vocabularies. Make sure you’re using his version of terms like “cash flow,” “net income” and “overhead.”

2. Don’t assume that ahealthy long-term profit is allthe would-be investor is looking for. He’s going to wantsomething in the short termtoo: Since you probably can’toffer him return, you may beable to interest him in the taxbenefits. More than one entrepreneur has finally sold hisbusiness by offering his investor a Subchapter S, orSection 1244 tax incentive:Subchapter S allows a smallbusiness to pass its lossesdirectly to investors; 1244 allows the investor to write offthe loss should the companyfail.

3. Don’t insist on retainingcontrol of 51 percent of your enterprise. It may be your idea, but the investor is putting up the money. Thirty percent is probably the best you’re going to do here. At that, you may have to take it down the road on an option. Venture capitalists aren’t in it for love: They want to make their share, too.



Don’t make a move without consulting your lawyer



You may have spent most of your career fighting lawyers, but if you decide to go into business for yourself, you’ll need to make friends with one fast. In fact, a lawyer should be the first man on your team. Let him handle your formal incorporation and carefully review your prospectus: Securities laws are complex, and the Feds don’t have much sympathy for neophytes.

More important, have your lawyer at your side during all serious negotiations with investors. Your euphoria at finally raising the money may make you a poor bargainer for your financial position in the new enterprise. A lawyer can make sure you get your end of the bargain, too.

At the same time, you might consider retaining an accountant. Though he will be of more value down the road, a good accountant can make certain your prospectus makes sense, and can advise you on a myriad of new tax problems. You may wind up spending a good chunk of your seed capital on such professional advice, but it’s a worthwhile investment.

If You Want to Know More



The following is by no means a comprehensive bibliography on entrepreneurship, but we found these selections particularly interesting and useful:

The Organization Makers: A Behavioral Study of Entrepreneurs, by Orvis Collins and David G. Moore, Apple-ton-Century-Crofts.

Fun & Guts: The Entrepreneur’s Philosophy, by Joseph Manusco, Addison and Wesley Publishing Co.

The Achieving Society, by David McClelland, Irving-ton Publishers.

Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, by Joseph A. Schumpeter, McGraw-Hill.

Investing in the Entrepreneur: Proceedings of the Second Annual Seminar of the Caruth Institute of Owner Managed Business, SMU Press.



For additional information, call the Caruth Institute at 692-3326. It can provide information on upcoming courses and lecture series on entre-preneurship. The institute’s next course on starting a business will take place in six weekly sessions starting August 31st. The course will be offered again in January and May of next year.

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